American hedge fund Pershing Square, led by the activist investor Bill Ackman, announced Tuesday a transaction valuing Universal Music Group at up to 55 billion euros, saying it believed the music giant was undervalued by stock markets.
Under the proposal, Pershing would merge UMG with Pershing Square SPARC Holding, an acquisition company that would be listed on the New York Stock Exchange.
Current UMG shareholders could exchange their holdings for a mix of cash and shares in the new entity, or for all cash or all shares, Ackman said in a letter to the UMG board.
Pershing Square said its cash and stock offer to Universal shareholders was worth 30.40 euros ($35.15) a share, valuing Universal with its stable of top artists — including Taylor Swift, The Weeknd and Lady Gaga — at around 55 billion euros.
That amounts to a premium of 78 percent to its April 2 closing price.
In the case where shareholder opt to cash out, they would receive 22 euros per shares, a premium of 29 percent.
But, according to an AFP calculation, Pershing would not hold a majority of shares under either scenario.
To finance the deal, Pershing expects to provide 2.5 billion in euros and to raise 5.4 billion euros through a debt offering by the newly formed entity. Another 1.5 billion euros in proceeds would come from monetizing UMG’s holding in Spotify.
The sale of the Spotify stake will also generate 750 million in proceeds for UMG artists, Ackman said in the letter.
Pershing Square said in a statement that it had submitted the offer to Universal’s board, hoping to close the deal by the end of 2026.
“UMG’s stock price has languished due to a combination of issues that are unrelated to the performance of its music business,” Ackman said in a statement.
Ackman pointed to uncertainty about French conglomerate Bollore’s plans for its 18 percent stake in Universal, a delay in listing on the US stock market, and “underutilization of UMG’s balance sheet” among concerns that have held back the shares’ performance.
Before going public with the proposal, Ackman reached out to Bollore with a “high level” summary of the deal. The French company expressed support, Ackman told a conference call with analysts.
“Without Bollore, we don’t have a transaction,” Ackman said. “The words I got back were ‘these are music to my ears’ and with that, we decided to go forward.”
Bollore did not immediately respond to a request for comment.
Pershing Square bought 10 percent of UMG from the French media giant Vivendi, also owned by Bollore, in August 2021. But Pershing’s holding is now about 4.7 percent, according to US media.
If the merger goes ahead, the new company would aim to increase its dividend payouts by two percent each year and maintain borrowing of 2.5 times its operating profit (EBITDA), Pershing Square said in the letter.
Universal shares ended Tuesday’s session at 19.06 euros, up 11.4 percent.
